Dollar advances as euro falters ahead of Jackson Hole meeting

By Gertrude Chavez-Dreyfuss NEW YORK (Reuters) - The dollar rallied on Tuesday after falling for two straight days, benefiting from the euro's decline following weaker-than-expected euro zone data as well as investors adjusting positions ahead of a global central bankers' conference this week. The U.S. currency posted its largest daily percentage gain in more than two weeks against the euro, and its best one-day rise in one week versus the yen. "The heavy short positioning on the dollar and some of the foreign growth momentum stabilizing, but still doing well, have created the potential for a mini-dollar rally," said Alessio de Longis, portfolio manager for the Global Multi-Asset Group at Oppenheimer Funds in New York. "We're beginning to see that, with profit-taking on some heavy short dollar positions," he added. A gathering of global central bankers later this week in Jackson Hole, Wyoming has also prompted investors to balance their currency positions ahead of the event, leading them to reduce some of their short dollar bets. Investors are awaiting speeches from Fed Chair Janet Yellen and European Central Bank President Mario Draghi in Jackson Hole, although neither of the officials is expected to announce new policy messages. "Draghi has already signaled the intent to address balance sheet concerns in the autumn, which we interpret to mean the October meeting," said Mazzen Issa, senior FX strategist, at TD Securities in New York. "This should leave Draghi more inclined to tiptoe around the policy outlook that implies tighter financial conditions," he added. The dollar's rise on Tuesday was led by gains against the euro, which weakened after a German investor confidence index fell in August. The Mannheim-based ZEW research institute said its monthly survey showed its economic sentiment index fell to 10.0 from 17.5 in July. This undershot a Reuters consensus forecast for a fall to 15.0. In late trading, the dollar index <.DXY> rose 0.5 percent against six major currencies to 93.549. The euro , meanwhile, slid 0.5 percent to $1.1749, retracing most of its overnight gains when it posted its biggest single-day rise so far this month. "Our bias in these thin markets is to sell the euro on rallies against the dollar as we think underlying positioning is still quite stretched," said Adam Cole, chief currency strategist at RBC Capital Markets in London. With bullish bets on the euro at a near five-year high, according to latest positioning data, some investors think the euro's strength may likely fade given the central bank's recent cautious stance about the currency. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Frances Kerry)